An Analysis of the Indian Depository System: Development and Function in the Indian Financial Market

An Analysis of the Indian Depository System: Development and Function in the Indian Financial Market

Author: Princy Gupta

ABSTRACT

The Depository System was established on November 8, 1996, by the Stock Holding  Corporation of India Limited. The system serves as a financial service organization where shareholder’s  securities are maintained in electronic format. The primary aim of the depository is to mitigate settlement risks by significantly reducing the extensive paperwork involved. It enables dematerialization, rematerialization, and the electronic transfer of securities. This system has improved market transparency, lowered transaction costs, and decreased the risks of fraud. With the integration of depository participants, investors can efficiently trade and manage their assets.

The research paper explores the structure, operation, and impact of the depository system in india, emphasizing its contribution to the modernization of financial markets. It also addresses how the depository system has facilitated  the transition to a paperless trading environment, thereby reducing costs and inefficiencies associated with traditional scripless trading. The paper provides a comprehensive overview of the depository system and offers insights into the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) which are pivotal in providing depository services, detailing their objectives and achievements. The study examines the evolution and significance of depositories in the Indian capital market over a span of 21 years, from Feb 2000 to Oct 2021.

KEYWORDS: Dematerialization, Rematerialization, National Securities Depository System (NSDL), Central Depository Services Limited (CDSL)